It is common knowledge that the Indian IT Services industry has grown dramatically over the past two decades. This growth has resulted in a huge amount of employment, foreign exchange revenues and has played a pivotal role in placing India as a serious economic player to reckon with globally. And yet, Are their any side effects to this fantastic success story that we are overlooking? My hunch is that most companies are already aware of certain HR related side effects, but are conveniently adopting the Ostrich attitude! Here are my views on this

“The Indian IT industry was less than $1 Billion and employing around 20,000 people in 1990. It grew to around $8.0 Billion by the year 2000 & to $65.0 Billion by 2010 employing 200,000 & 2.2 Million people respectively. The industry grew around 8 times in both decades & saw a proportionate increase in head count owing to the cost and labour arbitrage model. The industry is expected to grow to $220 Billion by 2020 & probably will employ around 5 Million people. That is only 3 times in this decade, compared to 8 times jump in the previous two decades.

Almost all those who joined the industry in 1990 have seen phenomenal growth in compensation & position. Even those joining the industry in 2000 have experienced around 6-10 times jump in their salaries in the last 10 years.

I don’t have to emphasize the spectacular 20 year journey, everyone knows that. So, what is the dark side that I am suggesting here? Here are some of the implications I foresee;

The salary growth is going to be lot slower for those joining now. There is very little scope left at the top and only bottom of the pyramid will expand. Unlike in the past, where everyone enjoyed spectacular growth, only 20% competent people will see growth. Other 80% will be lucky to get growth of more than inflation rate.

The bigger issue will be the expectation of people. When people joined the Software industry in the 1990’s, they never really expected such growth, success and exposure.Those joining in the 2000’s certainly had high expectations from the industry, and in most cases their ambitions were fulfilled. However, come this decade, and things are going to be significantly different. The youngsters joining today have unreasonable expectations in terms of vertical growth as well as financial remuneration. Question is- Can the industry really support their aspirations? Given the rapid saturation of people at the higher levels, and the increasing pressure to control salaries at the lower end of the pyramid to maintain the cost arbitrage advantage, it is unlikely that the people joining today will get the same growth opportunities their earlier generation got.

Even those who have joined in 2000s will start seeing significantly slower growth rates. Even worse, I will not be surprised if soon people with 10+ years of development experience will start getting replaced by cheaper and less experienced people. Thus a huge number of people with 10-15 years experience will start stagnating in their roles, and slowly find themselves becoming redundant.

When I spoke with a friend who heads Delivery in a large IT company, he confirmed that he took 5 years to become a Project Manager (having joined in 1995) while the average experience of his PMs today is 9 years. Will we see this increasing to 12 years in the coming decade? Another Head of HR in a large company mentioned to me that “In future the salary will not be based on no. years of experience, but is determined by what has one done in last 2 years & how will he/she impact next 2 years”.

I believe this requires lot of structural interventions. I don’t have a good solution to this problem. Do you agree this is a challenge bubbling under, If yes any clue on solving this, if no why?”

It is common knowledge that the Indian IT Services industry has grown dramatically over the past two decades. This growth has resulted in a huge amount of employment, foreign exchange revenues and has played a pivotal role in placing India as a serious economic player to reckon with globally. And yet, Are their any side effects to this fantastic success story that we are overlooking? My hunch is that most companies are already aware of certain HR related side effects, but are conveniently adopting the Ostrich attitude! Here are my views on this

“The Indian IT industry was less than $1 Billion and employing around 20,000 people in 1990. It grew to around $8.0 Billion by the year 2000 & to $65.0 Billion by 2010 employing 200,000 & 2.2 Million people respectively. The industry grew around 8 times in both decades & saw a proportionate increase in head count owing to the cost and labour arbitrage model. The industry is expected to grow to $220 Billion by 2020 & probably will employ around 5 Million people.

Almost all those who joined the industry in 1990 have seen phenomenal growth in compensation & position. Even those joining the industry in 2000 have experienced around 6-10 times jump in their salaries in the last 10 years.

I don’t have to emphasize the spectacular 20 year journey, everyone knows that. So, what is the dark side that I am suggesting here? Here are some of the implications I foresee;

1.The salary growth is going to be lot slower for those joining now. There is very little scope left at the top and only bottom of the pyramid will expand. Unlike in the past, where everyone enjoyed spectacular growth, only 20% competent people will see growth. Other 80% will be lucky to get growth of more than inflation rate.

2.The bigger issue will be the expectation of people. When people joined the Software industry in the 1990’s, they never really expected such growth, success and exposure.Those joining in the 2000’s certainly had high expectations from the industry, and in most cases their ambitions were fulfilled. However, come this decade, and things are going to be significantly different. The youngsters joining today have unreasonable expectations in terms of vertical growth as well as financial remuneration. Question is- Can the industry really support their aspirations? Given the rapid saturation of people at the higher levels, and the increasing pressure to control salaries at the lower end of the pyramid to maintain the cost arbitrage advantage, it is unlikely that the people joining today will get the same growth opportunities their earlier generation got.

3.Even those who have joined in 2000s will start seeing significantly slower growth rates. Even worse, I will not be surprised if soon people with 10+ years of development experience will start getting replaced by cheaper and less experienced people. Thus a huge number of people with 10-15 years experience will start stagnating in their roles, and slowly find themselves becoming redundant.

When I spoke with a friend who heads Delivery in a large IT company, he confirmed that he took 5 years to become a Project Manager (having joined in 1995) while the average experience of his PMs today is 9 years. Will we see this increasing to 12 years in the coming decade? Another Head of HR in a large company mentioned to me that “In future the salary will not be based on no. years of experience, but is determined by what has one done in last 2 years & how will he/she impact next 2 years”.

I believe this requires lot of structural interventions. I don’t have a good solution to this problem. Do you agree this is a challenge bubbling under, If yes any clue on solving this, if no why?”

In my recent interactions with IT companies, there were some very thought provoking discussions that I was involved in. To the extent that the points made by some fairly senior level professionals from the Indian IT industry left me thinking. These are of course personal opinions based on their experience, and I had this strong urge to put this onto our blog to solicit viewer opinions on these matters. I trust that most of you viewers would find these topics just as intriguing as I did;

1. “Almost all mid-sized IT services companies are predominantly 2-3 client companies”- The statement shook me out of the mild afternoon numbness I had regressed into after a heavy “Working Lunch”. I was suddenly all attentive and trying to fathom the gravity of the statement. If this were true, then it meant that all these mid- sized companies were practically built on relationships, and to that effect- were extremely vulnerable in the given circumstances!! I stepped back from the discussion, and I jogged my memory to some of the mid- sized companies that I had interacted with in the past, and which were in the range of US$150 Million to US$400 Million. Almost on every count, I found that perhaps there was some truth to this statement. Without taking names here, I could think of at least seven mid- sized companies that were extremely dependant on two clients for upto 45-50% of their revenues! In one case, I distinctly remember a client of ours which used to be a US$60 Million+ company with two key clients. In the last 3 years, since we worked with them, the company lost business from both the key accounts and its turnover dipped from US$60 Million to US$20 Million!!

This really brings up a lot of questions –

Are the Indian tier II/III companies truly as vulnerable and unstable as suggested by this person?

In which case, wouldn’t risk mitigation through aggressive new client acquisition be of supreme priority at the board level?

And which brings me back to an earlier topic that was raised by my colleague on this same blog – Are these companies equipped to deliver the goods from a hunting perspective?

And in these circumstances – How far are we from a strong wave of consolidation in the mid tiered software services companies?

2. The other interesting statement I heard was in one of the workshops we were conducting, when the topic came up on new business targets. The client mentioned-“As a P&L responsibility holder, at a practical level – does investing time and effort into acquiring and servicing new clients really pay off as well as directing the same investments towards farming existing accounts? ”. All right, it was time for me to wake up again! Are we saying here that the since the pay-off is more when it comes to farming, at the operational level, new accounts don’t necessarily delight the delivery teams as much? Think of it this way- You have a new client. You need to set the expectations right, understand the clients stake holders better, deliver a POC to their satisfaction. Wherein, invariably the cost of establishing the trust, quality deliverables, and delivering the POC successfully has to be absorbed by your team! My guess is, all things being treated equal- I would rather focus on a proven relationship- than go through all the teething problems over and over again. Makes sense? To add to this, how many pilots are truly delivered successfully on a regular basis? Let’s look at it this way – Every quarter, we hear companies announce that they won “X” number of new client contracts within the quarter. What we don’t hear about is- the number of clients they lost in the quarter. I mean logically, with a large number of new clients being added every quarter and close to 70% of business growth coming from existing accounts, wouldn’t these companies be growing at a much healthier rate than they are as of today? And wouldn’t my first point be irrelevant there? Something doesn’t seem very right here.

Your thoughts might just help me understand if I am the only one with this method of viewing this situation. Would love to hear what you all think.